Preliminary results for the year ended 31 Dec 2017

RNS Number : 3445K

Belvoir Lettings PLC

10 April 2018

 

                                                                                                                                                                                10 April 2018

BELVOIR!
             

BELVOIR LETTINGS PLC

(the "Company", the "Group" or "Belvoir")

Preliminary results for the year ended 31 December 2017

Belvoir Lettings plc (AIM: BLV), the UK's largest property franchise group, is pleased to announce its preliminary results for the year ended 31 December 2017.

·     Growth in Management Service Fees (MSF) of 23% to £7.9m (2016: £6.4m), of which 17% related to a full year inclusion of Northwood GB Limited ("Northwood")

·     The Group retained its strong lettings bias with a ratio of lettings to sales revenue of 80:20 (2016: 76:24)

·     Group revenue up 14% to £11.3m (2016: £9.9m) with increases led by the 2016 Northwood and the 2017 Brook Financial Services ("Brook") acquisitions being partially offset by the planned franchising of six Belvoir corporate offices

·     Profit before tax up 62% to £3.9m (2016: £2.4m) and adjusted profit before tax up 39% to £4.9m (2016: £3.5m) as a result of the enlarged group and continued organic growth in the underlying business

·     Year-end cash position of £1.4m (2016: £1.6m) and bank debt of £6.5m (2016: £7.0m) having paid £1.7m in cash for the acquisition of Brook

·     Basic earnings per share (EPS) of 8.6p (2016: 5.7p); adjusted EPS of 11.3p (2016: 8.8p)

·     Increased final dividend of 3.5p (2016: 3.4p) giving a total dividend for the year of 6.9p (2016: 6.8p)

Operational highlights

·     Acquisition of Brook, a specialist mortgage broker in July 2017

·     £0.3m reduction in cost base arising from Q1 2017 restructuring at Northwood

·     23 (2016: nine) assisted franchisees' acquisitions adding over £3.3m (2016: £1.5m) to network revenue and MSF of £351,000 (2016: £243,000) p.a.

·     The Group now manages 58,020 (2016: 55,756) properties

·     Belvoir won the gold award for "Franchise/Network Group of the Year" at the Negotiators Awards 2017

·     Northwood won the gold allAgents award for Best Franchise and Best Lettings Agent in the UK 2017

Dorian Gonsalves, Chief Executive Officer of Belvoir Lettings, commented:

"We are pleased to report another year of strong growth for the Group, in terms of both revenues and profitability.  Our franchisees, who are mostly owner-operators, have continued to grow organically, through diversification and by making local portfolio acquisitions, all of which have contributed to our adjusted profit in 2017 being up 39%.  Our franchisees are incredibly motivated to find ways to grow and develop their business and this dynamism, combined with local property expertise, underpins our continued successful growth. 

Looking to 2018, the Board remains confident that the Belvoir Group will benefit from further consolidation within the sector, further integration of our recent acquisitions to deliver additional efficiencies and diversification of property-related services offered through our franchised networks, to ensure a continued increase in shareholder value."

For further details:

Belvoir Lettings PLC Dorian Gonsalves, Chief Executive Officer Louise George, Chief Financial Officer	01476 584900 [e-mail]
Cantor Fitzgerald Europe (Nominated Adviser and Broker) Rick Thompson, Philip Davies, Will Goode (Corporate Finance)	0207 894 7000
Caspar Shand Kydd, Alex Pollen (Sales)
Buchanan Charles Ryland, Madeleine Seacombe, Tilly Abraham	0207 466 5000 [e-mail]

Note to Editors:

About Belvoir Lettings PLC

Founded in 1995 and listed on AIM in 2012 (BLV.L), Belvoir operates a nationwide property franchise group with 300 offices across three brands offering a range of specialist services in property rental, property management, residential lettings, buy to let and property sales. With its Central Office in Grantham, Lincolnshire, the Group manages over 58,000 properties and reported revenue of £11.3m in 2017 making Belvoir the largest property franchise group in the UK.

Chairman's statement

I am pleased to report that the Belvoir Group has made significant progress, increasing profitability by over 60% in a year that was a testing one for some companies in the property sector.

Performance

Total revenue of £11.3m was underpinned by increases in both MSF from lettings and sales of 23% and 21% respectively with organic growth being enhanced by growth from acquisitions and increased take-up of property sales by both the Belvoir and Northwood networks. This is testament to the resilience of Belvoir's franchising model and its responsiveness to changing markets.  In the face of uncertainty from the introduction of new regulations, our franchisees have risen to the challenge with many seeing growth through portfolio acquisition opportunities at a local level and pursuing new revenue streams, such as property sales and financial services, as a means to securing their long-term future. 

Strategy

The Board of Belvoir identified financial services as a potential growth area for the Group, and in July 2017 acquired Brook as an excellent vehicle for maximising our return from individual property transactions through the sale of specialist mortgage and property-related financial services.  I would like to take this opportunity to welcome Michelle Brook and her team to the Belvoir Group. Brook is already working closely with all 39 Newton Fallowell offices and, with 25 Belvoir and 6 Northwood offices now also on board, I have every confidence in their ability to roll out their financial services offering across these other two Group networks.

At the Group level, we continue in our aim to extend our share of the UK property market by leveraging our expertise as a franchisor, as we see a genuine benefit to all stakeholders from further consolidation within the sector.  We firmly believe that Belvoir is best placed to take advantage of consolidation at both the franchisee and franchisor level.  Furthermore, the Board is committed to broadening the range of property services offered by our franchisees, building on their reputation for delivering a highly professional lettings and estate agency service throughout the customer property journey.

Senior management

As Chairman, I am especially pleased with the strength and depth of our senior team, from the main Board Directors to the management teams of our various trading subsidiaries, Belvoir, Northwood, Newton Fallowell and Brook, all of whom are long-serving and very capable.  These dedicated teams have been instrumental in doubling the number and value of transactions under the Assisted Acquisitions programme, successfully integrating the Northwood network to deliver a 58% increase in its EBITDA within 19 months, and starting the process of cross-selling financial services to the whole Group through Brook.  In addition we have recently completed our planned programme to franchise all but the two original Grantham-based Belvoir and Newton Fallowell corporate offices, enabling us to focus entirely on the further development of our franchise model.  

Growth

Our headline figures reflect how successfully the Belvoir Group has performed in 2017.  Revenue increased by 14% to £11.3m (2016: £9.9m), operating profit of £3.9m (2016: £2.5m) is an increase of 56%, profit before tax of £3.9m (2016: £2.4m) is up 62%, and there has been a 28% improvement in the adjusted earnings per share (EPS) to 11.3p (2016: 8.8p).  These figures reflect a full year of Northwood and a part-year contribution from Brook but nevertheless they are significant and have encouraged us to increase our dividend to 6.9p per share, showing our confidence in the strength of the Group to continue to deliver on its growth strategy.

Board changes

Finally, we say farewell to Nicholas Leeming as a Non-Executive Director and the Chairman of the Remuneration Committee.  Nicholas has been with us for over five years having joined just after Belvoir floated on AIM and in that time he has brought a wealth of experience and wisdom to the Board.  I would like to thank him for his valuable contribution and wish him the very best for the future.  At the same time we welcome Michael Stoop to the Board. Michael has over 40 years' experience of the franchise property market, having held the role of group managing director initially at Winkworth, then at Legal and General's estate agency network, Xperience, where he was instrumental in converting the corporate-owned offices into a wholly franchised network of 95 offices, and most recently at the Property Franchise Group plc until he stood down in 2016. I am confident that with his background and experience, Michael will make a valuable contribution to the Group's strategy.

Outlook

Looking to the future I have every confidence in the success of our franchise business model which, having flourished historically in all phases of the property market, can and will adapt to the current changing market conditions.

Mike Goddard

Chairman

Operating review

MSF growth

Management Service Fees (MSF) increased by 23% to £7.9m (2016: £6.4m).

These fees are collected by each network as a royalty for providing a brand, a system and the considerable know-how for a franchisee to operate a profitable business at local office level. The increase in MSF reflects growth across our existing network of offices and a full year's contribution from Northwood.

Lettings

Like Belvoir, Northwood has a strong lettings background which is evident in lettings now representing 80% (2016: 76%) of our network revenue, providing a reliable and recurring income from a nationwide portfolio of 58,020 (2016: 55,576) rented properties.

Belvoir's Rental Index for the final quarter of 2017 confirms that rents are rising broadly in line with average wages. Belvoir has over 300 offices nationwide and data for those offices that have traded consistently over the last nine years in England, Wales and Scotland indicate a year-of-year (YoY) increase in average rents of 2% from £744 in Q4 2016 to £759 in Q4 2017 whereas average earnings increased 2.5% YoY according to ONS figures. Average rents including all Belvoir offices range from £597 per month in the North West (down 5% YoY), up to £657 in the East Midlands (up 6% YoY) and through to £1,046 in the South East (up 7% YoY) and £1,431 in London (down 5% YoY).

Property sales

Our main estate agency network, Newton Fallowell, achieved a 10% growth in revenue from property sales whilst the lettings-biased networks, Belvoir and Northwood-branded offices saw property sales MSF increase by 47% and 7% respectively.  The ability of our traditional lettings agents to be able to process property sales is critical to retaining the ongoing portfolio of managed properties, with most landlords looking first to sell through their lettings agent.  Where the new owner is a landlord buyer, there is a strong probability of retaining the vast majority of their properties under management.

Financial services

Financial services were identified as a means of increasing the return from property sales that would benefit both franchisee and franchisor.  The acquisition of Brook represented an opportunity to bring into the Group a very successful business with a track record in the financial services sector.  The Board believes that the focused approach operated by Brook will enable the Group to achieve materially greater penetration of Belvoir's client base and increase the financial services fees generated on property sales across all Group networks.  As our lettings-biased networks, Belvoir and Northwood, grow their property sales business, Brook will enable our brands to increase further their revenue from estate agency-related services and mitigate some of the impact of the upcoming ban on tenant fees.  Additionally, Brook will be able to make immediate inroads into the Group's main estate agency network, Newton Fallowell, by increasing the available number of mortgage advisors to service their substantial house sales transactions.

Assisted acquisitions

2017 saw a record number of portfolio acquisitions at a franchisee level under the Assisted Acquisitions programme, a core part of the Group's growth strategy.  The Board's target of doubling the number of transactions under this programme was significantly exceeded with 23 (2016: nine) independent agencies being acquired.  These acquisitions were undertaken by one Newton Fallowell, eight Belvoir and 14 Northwood franchisees and added £3.3m (2016: £1.5m) to network revenue, 2,264 managed properties and £351,000 (2016: £243,000) p.a. in MSF. 

There remain over 10,000 potential acquisition targets comprising small to medium-sized independent lettings and sales agents in the UK, which might look to exit following increased regulation and the prospect of the ban on tenant fees in 2019.  Our dedicated in-house acquisitions team currently has 73 franchises registered on the Assisted Acquisitions programme and 17 opportunities under consideration.

A growing business

Our growth depends directly on the entrepreneurial drive of our franchisees and, unlike many franchise offerings, our model offers our franchisees both a revenue stream from their business and a capital value on exit. In order to maximise our growth potential, we have recently launched a new strategy to enable existing franchisees to expand into an adjacent empty territory. Franchisees can appoint a suitable business partner to work the new territory from home as a satellite of their existing franchise office which would provide all back office support. The focus will be on establishing a reliable revenue stream within the first three years, after which a high street office would be opened in the new territory to ensure that the business could fulfil its maximum growth potential. Our successful strategy of growing our network organically with single and multi-unit operators and by acquisition continues to evolve to ensure we improve our physical footprint and brand awareness.

Corporate offices

In 2016 the Board determined to implement a franchise solution for eight of its ten corporate-owned offices, retaining the two original Grantham-based Belvoir and Newton Fallowell offices, both of which are very profitable, to be used for system development purposes.  This process is now complete, with four offices having been sold in 2016, two in 2017 and the final two in the first quarter of 2018.  Of these, three were sold to adjacent franchisees, two to the existing branch manager, and three to a new franchise owner.  In one case the new owner was already operating two existing lettings businesses which will now be rebranded to Belvoir.  The Board see this as a way of bringing fresh impetus to these offices and freeing the Board to focus on the Group's franchising operations.

Compliance

Belvoir Group has built its reputation by delivering a highly professional lettings and estate agency service which embraces the principles of specialism, quality and customer care.  Compliance is at the top of our agenda with all franchisees undergoing a training programme and ongoing business support and every office being audited annually to ensure strict adherence to our high operational standards and current legislation.  This is increasingly important as the Government looks to professionalise the private rented sector (PRS) sector through greater regulation and control.  The Board welcomes the Government's initiatives that we believe will deter rogue landlords and agents.

Market conditions

The size of the PRS in the UK has been steadily increasing for over a decade, resulting in the PRS representing 20% of the total households. A lack of affordable housing, static wages and indeed personal choice are causing the PRS to cater for a wider reaching demographic including families, professionals and even retirees. For this reason the PRS is evolving, the average tenancy is now just under four years and many people are turning to lettings, looking for their long-term stable home. In line with these changes, tenants are expecting a much higher standard of property and service from their agent meaning a reputable, professional agent is more important than ever for landlords to attract the right tenant.

Impacting on this shift is the added increase in regulation of the lettings industry imposed by the Government. These changes are already leading to consolidation in the lettings market as smaller independent agents look to exit, leaving market share for our franchisees to capitalise on, either organically or directly through our Assisted Acquisitions programme.

Some of the changes in our industry such as the upcoming ban on tenant fees will certainly be a challenge for our business but robust plans have been in place ever since the ban was announced to give franchisees additional opportunities such as property sales to mitigate the loss in revenue.

The sales market in the UK has been fairly uneventful with unchanged transaction numbers and a modest increase in house prices of 5.2% during 2017. This result was more positive than anticipated though and was probably due to supply and demand with net migration exceeding the number of new builds completed in 2017.

The Group's performance in property sales was very positive in 2017 with an increase in MSF of 21%. Our relatively small reliance on the property sales market and the fact that the majority of our franchisees are offering sales as an additional service alongside a very stable lettings business mean there is only really upside for us with property sales. The acquisition of Brook also helped us build on this opportunity, as franchisees can generate additional revenue from each house sale whilst offering their clients a more comprehensive property service.

Franchising

In 2016 the British Franchising Association and NatWest jointly reported that the franchising industry was estimated to be worth £15.1bn to the UK economy, an increase of 46% over the last ten years. The increasing popularity of franchising was linked to the greater chance of financial success with a record 97% of franchisee-owned units reported profitability, with 56% saying they are "quite" or "very" profitable. Franchising offers a relatively low-risk way for young people to get into business with one in five franchise owners launching their business in the last two years being under the age of 30. It also offers opportunity for scale with 29% of franchises running multiple outlets.

Current trading and outlook

2018 has started well with eight franchisees having completed on portfolio acquisitions estimated to bring in a total of £2.4m p.a. of additional network revenue, taking the Group to 42% of our 2018 target within Q1.  Furthermore, despite the anticipated slow-down in house sales, our main estate agency network, Newton Fallowell, has reported on both sales subject to contract and its pipeline being ahead of 2017.  Our investment in Brook to deliver a planned increase in revenue from financial services is proving to be a success with the value of mortgages written and net banking up 30% through a combination of a greater number of mortgages being written, a higher penetration from life policies and an increased average case value on the same period last year. 

We do anticipate some tempering of the underlying organic growth of the lettings market with YoY average rent increases reported at 2% in Q4 2017 and evidence of slightly longer void periods between tenancies in some regions.  However, given the shortfall of properties available to buy continuing to fuel demand within the PRS and the additional legislative demands on both lettings agents and private landlords seeing an increase in the need for a qualified, well supported agent, we believe that our franchisees are in a good position to capitalise on the opportunities within the sector and anticipate a further year of positive growth for the Belvoir Group.

Dorian Gonsalves

Chief Executive Officer

Financial review

Revenue

In 2017 Group revenue increased by 14% to £11.3m (2016: £9.9m) reflecting the full year's impact of our 2016 acquisition of Northwood, the 2017 acquisition of Brook Financial Services and the franchising out of six corporate-owned offices during the two years under review.

MSF increased by 22.5% to £7.9m (2016: £6.4m) of which 16.6% resulted from Northwood being within the Group for twelve months (2016: seven).  Adjusting for the full year impact of Northwood, lettings MSF increased by a further 4.3%, of which 2.7% arose from like-for-like growth and 1.6% from portfolio acquisitions by franchisees.  Meanwhile MSF from property sales increased by 1.6% overall, with the main estate agency network, Newton Fallowell, on par with last year and growth of 47% and 7% within the lettings-biased networks, Belvoir and Northwood, respectively.

Income from corporate-owned offices was down £0.9m as a result of the disposal of six Belvoir offices to franchisees between August 2016 and March 2017.  At the year end there remained four corporate-owned offices, of which Cumbria and Spalding have since each been acquired by a new franchise owner, leaving the two original Grantham offices of Belvoir and Newton Fallowell, which are both profitable and will be retained for future development purposes.

Revenue from franchise sales in 2017 was £0.3m (2016: £0.4m).  The Group's recruitment policy is geared towards bringing on new franchise owners via a resale of an existing franchised territory or into a "hot start" where a portfolio acquisition is executed at the time of opening, so as to give our new franchise owners a launch pad.  During 2017, we processed five resales and one hot start.  Meanwhile we saw nine of our existing franchise owners open a second office, often as part of a portfolio acquisition transaction.

The acquisition of Brook Financial Services ("Brook") in July 2017 has introduced a new reportable revenue stream for the Group with Brook adding £0.9m to the £0.3m of financial services revenue within the Group to give a total of £1.2m (2016: £0.3m) for the year.

Having recognised financial services as a separate revenue stream, the 2016 "other income" has been adjusted to extract financial services, leaving other income comparable at £0.5m (2016: £0.5m) for both years under review.

Operating profit before exceptional items

The £0.4m reduction in non-exceptional administrative expenses to £6.5m (2016: £6.9m) reflected a number of underlying factors.  The full year impact of the Northwood, expected to add around £0.6m, was considerably mitigated by a restructuring exercise carried out in Q1 of 2017 which eliminated £0.3m from overheads and tighter cost control, resulting in a net increase of £0.2m in the Northwood cost base.  The July 2017 acquisition of Brook added £0.7m to overheads and the franchising out of the six corporate offices reduced overheads by £1.2m. 

Within administrative expenses there is a charge of £72,000 (2016: £25,000) associated with the share options issued to Directors and certain staff between 2014 and 2017. 

Operating profit before exceptional items was £3.9m (2016: £2.5m), an increase of 56% over the prior year.

Exceptional items

Exceptional items totalled £0.5m (2016: £0.7m), of which £0.1m and £0.2m related to legal and professional fees associated with the acquisition of Brook and an aborted merger offer respectively, and £0.1m represented the deemed interest on the Northwood contingent consideration.

Profit before taxation

Profit before taxation of £3.9m (2016: £2.4m) is after interest receivable on franchisee loans of £0.3m (2016: £0.3m), which is regarded by the Group as part of its ongoing operations to extend the network reach.

Taxation

The effective rate of corporate tax for the year was 24.2% (2016: 23.9%) due to the £0.3m exceptional legal and professional costs of the acquisition and deemed interest not being an allowable deduction from profits for tax purposes.

Earnings per share

Basic earnings per share was up 51% to 8.6p (2016: 5.7p) based on an average number of shares in issue in the period of 34,638,939 (2016: 32,375,694), an increase arising from the issue of 803,284 shares in January against the Northwood earn-out and 475,162 shares in July 2017 against the Brook acquisition.  When diluted to incorporate 1,830,399 (2016: 938,399) share options, the earnings per share was 8.1p (2016: 5.5p).

Adjusted basic earnings per share of 11.3p (2016: 8.8p) reflects adjustments for exceptional administrative costs, profit/(loss) on disposal of corporate offices, deemed interest on contingent consideration, amortisation of acquired intangibles and the share-based payment charge totalling £0.9m. The adjusted diluted earnings per share was 10.7p (2016: 8.5p).

The profit attributable to owners was up 67% to £3.0m (2016: £1.8m).

Dividends

The Board is proposing a final dividend for 2017 of 3.5p per share (2016: 3.4p). Together with the interim dividend of 3.4p paid to shareholders on 27 October 2017, this equates to a total dividend for the year of 6.9p per share (2016: 6.8p), a modest increase in line with the Board's progressive dividend policy.

Subject to shareholders' approval at the AGM on 29 May 2017, the dividend will be paid on 31 May 2018 based upon the register on 20 April 2018.  The ex-dividend date will be 19 April 2018.  

Cash flow

The net cash inflow from operations was £4.6m (2016: £2.9m) reflecting the enlarged Group.

The net cash used in investing activities was £0.9m (2016: £9.4m):

·     On 12 July 2017 the Group acquired the entire share capital of Brook Financial Services Limited, a specialist mortgage advice company, for consideration of £2.2m, of which £1.7m was settled in cash and £0.5m by the issue of shares to the vendor.

·     On 2 May 2017 the Group took ownership of the Yardley franchise office at a cost of £0.1m.  This office, and two existing corporate offices, Devizes and Burton, were sold to new franchise owners during the year giving rise to a cash inflow of £0.3m (2016: £0.8m) on disposal.

·     £0.4m was returned from the Northwood escrow account to settle a tax liability.

·     During the year the net inflow from the franchise loan book was £0.1m (2016: net outflow of £0.4m).

Loans repaid to the bank in the year were £0.5m (2016: £1.0m) and dividend payments totalled £2.4m (2016: £2.2m).  As a result, net cash outflow from financing activities totalled £3.1m (2016: net cash inflow of £5.9m). 

Liquidity and capital resources

At the year end the Group had cash balances of £1.4m (2016: £1.6m) and a term loan of £6.5m (2016: £7.0m).  The Group entered into new banking facilities with HSBC on 28 March 2018.  As part of that process the year end NatWest bank loan was settled and a new revolving credit facility of £12.0m was put in its place to provide the Group will sufficient liquidity to settle the Northwood earn-out expected to crystallise in July 2018.  The initial drawdown of £7.0m under the HSBC facility is repayable in half-yearly payments of £350,000.

Financial position

The Group continues to operate from a sound financial platform and is strongly cash generative.  This, together with the £1.4m opening cash balance, will enable the Group to meet the bank loan repayment of £0.7m in 2018.  Also, the capital repayments from the existing franchisee loan book will enable the Group to give further financial assistance to franchisees acquiring local managed lettings portfolios, which delivers both network growth and favourable rates of return for the Group.

Key performance indicators

The Group uses a number of key financial and non-financial performance indicators to measure performance.  The Group also uses alternative performance measures to improve comparability of information between reporting periods and across the sector for uncontrollable and one-off factors, which impact upon IFRS measures, to aid the users of the annual report in understanding the activity taking place across the Group's portfolio.

The key financial indicators are as follows:

·    management service fee;

·    adjusted net profit before tax; and

·    adjusted earnings per share.

These have been discussed in further detail above.

Following the introduction of property sales to the Belvoir network in 2014, the Board started tracking the number of offices offering property sales as a KPI.  Since the acquisitions of Newton Fallowell, Goodchilds and Northwood, all of which were already offering sales to varying degrees, and given that the penetration of sales within the Belvoir network is now up to over 60%, the number of offices offering property sales is no longer deemed to be a key determinant of future growth.  Meanwhile, the Board is closely monitoring the success of the Assisted Acquisitions programme as a key part of its strategic growth plans.  This change in focus has been reflected in the key non-financial indicators listed below:

·    number of offices;

·    managed properties; and

·    additional MSF arising from assisted acquisitions.

Louise George
Chief Financial Officer

Group statement of comprehensive income

For the financial year ended 31 December 2017

	Notes	2017 £'000	2016 £'000
Continuing operations
Revenue	3	11,299	9,940
Cost of sales	4	(510)	-
Gross profit		10,789	9,940
Administrative expenses
Non-exceptional	4	(6,540)	(6,948)
Exceptional	6	(332)	(482)
		(6,872)	(7,430)
Operating profit		3,917	2,510
Profit/(loss) on disposal of corporate offices	6	6	(160)
Finance costs		(192)	(139)
Finance income		313	291
Exceptional deemed interest on contingent consideration	6	(134)	(93)
Profit before taxation		3,910	2,409
Taxation		(948)	(576)
Profit and total comprehensive income for the financial year		2,962	1,833
Profit for the year attributable to the equity holders of the parent company		2,962	1,833
Basic earnings per share from continuing operations	8	8.6p	5.7p
Adjusted basic earnings per share from continuing operations	8	11.3p	8.8p
Adjusted diluted earnings per share from continuing operations	8	10.7p	8.5p

The Group's results shown above are derived entirely from continuing operations.

Statements of financial position

As at 31 December 2017

	Notes	Group			Company
		2017 £'000	2016 £'000		2017 £'000	2016 £'000
Assets
Non-current assets
Intangible assets		26,487	24,772		-	-
Investments in subsidiaries		-	-		39,533	35,314
Property, plant and equipment		635	657		45	-
Trade and other receivables		3,617	4,024		-	-
		30,739	29,453		39,578	35,314
Current assets
Trade and other receivables		2,813	2,740		4,931	8,287
Cash and cash equivalents		1,350	1,591		226	16
		4,163	4,331		5,157	8,303
Total assets		34,902	33,784		44,735	43,617
Liabilities
Non-current liabilities
Trade and other payables		-	4,281		-	4,281
Interest-bearing loans and borrowings	9	5,578	6,270		5,578	6,270
Deferred tax		1,989	2,054		8	-
		7,567	12,605		5,586	10,551
Current liabilities
Trade and other payables		6,462	2,307		5,657	2,404
Interest-bearing loans and borrowings	9	866	692		866	692
Tax payable		566	849		-	-
		7,894	3,848		6,523	3,096
Total liabilities		15,461	16,453		12,109	13,647
Total net assets		19,441	17,331		32,626	29,970
Equity
Shareholders' equity
Share capital	10	349	336		349	336
Share premium	10	12,006	10,583		12,006	10,583
Share-based payments reserve		148	76		148	76
Revaluation reserve		162	162		(50)	(50)
Merger reserve		(5,774)	(5,774)		8,101	8,101
Retained earnings		12,550	11,948		12,072	10,924
Total equity		19,441	17,331		32,626	29,970

The Company made a profit after tax of £3,508,000 (2016: £1,063,000).

The financial statements were approved and authorised for issue by the Board on 10 April 2018 and signed on its behalf by:

Mike Goddard

Chairman

Registered number 07848163

Statements of changes in shareholders' equity

For the financial year ended 31 December 2017

Group

	Notes	Share capital £'000	Share premium £'000	Share-based payments reserve £'000	Revaluation reserve £'000	Merger reserve £'000	Retained earnings £'000	Total equity £'000
Balance at 1 January 2016		305	7,379	51	162	(5,774)	12,298	14,421
Changes in equity
Issue of equity share capital	10	31	3,204	-	-	-	-	3,235
Share-based payments	5	-	-	25	-	-	-	25
Dividends	7	-	-	-	-	-	(2,183)	(2,183)
Transactions with owners		31	3,204	25	-	-	(2,183)	1,077
Profit and total comprehensive income for the financial year		-	-	-	-	-	1,833	1,833
Balance at 31 December 2016		336	10,583	76	162	(5,774)	11,948	17,331
Issue of equity share capital	10	13	1,423	-	-	-	-	1,436
Share-based payments	5	-	-	72	-	-	-	72
Dividends	7	-	-	-	-	-	(2,360)	(2,360)
Transactions with owners		13	1,423	72	-	-	(2,360)	(852)
Profit and total comprehensive income for the financial year		-	-	-	-	-	2,962	2,962
Balance at 31 December 2017		349	12,006	148	162	(5,774)	12,550	19,441

Company

	Notes	Share capital £'000	Share premium £'000	Share-based payments reserve £'000	Revaluation reserve £'000	Merger reserve £'000	Retained earnings £'000	Total equity £'000
Balance at 1 January 2016		305	7,379	51	(50)	8,101	12,044	27,830
Changes in equity
Issue of equity share capital	10	31	3,204	-	-	-	-	3,235
Share-based payments	5	-	-	25	-	-	-	25
Dividends	7	-	-	-	-	-	(2,183)	(2,183)
Transactions with owners		31	3,204	25	-	-	(2,183)	1,077
Profit and total comprehensive income for the financial year		-	-	-	-	-	1,063	1,063
Balance at 31 December 2016		336	10,583	76	(50)	8,101	10,924	29,970
Issue of equity share capital	10	13	1,423	-	-	-	-	1,436
Share-based payments	5	-	-	72	-	-	-	72
Dividends	7	-	-	-	-	-	(2,360)	(2,360)
Transactions with owners		13	1,423	72	-	-	(2,360)	(852)
Profit and total comprehensive income for the financial year		-	-	-	-	-	3,508	3,508
Balance at 31 December 2017		349	12,006	148	(50)	8,101	12,072	32,626

The accompanying notes form an integral part of these consolidated financial statements.

Statements of cash flows

For the financial year ended 31 December 2017

		Notes	Group			Company
			2017 £'000	2016 £'000		2017 £'000	2016 £'000
Operating activities
Cash generated from operating activities		11	4,612	2,946		2,183	1,331
Tax paid			(912)	(597)		-	-
Net cash flows generated from operating activities			3,700	2,349		2,183	1,331
Investing activities
Acquisitions			(1,854)	(8,005)		(3,647)	(8,000)
Working capital and cash introduced by companies acquired			29	243		-	-
Deferred and contingent consideration			(76)	(2,202)		(76)	(2,202)
Capital expenditure on property, plant and equipment			(114)	(80)		(52)	-
Disposal of assets			324	797		-	-
Franchisee loans granted			(681)	(1,352)		-	-
Loans repaid by franchisees			761	938		-	-
Finance income			313	291		-	-
Return of funds from escrow			434	-		434	-
Dividends received			-	-		4,445	1,800
Net cash flows used in investing activities			(864)	(9,370)		1,104	(8,402)
Financing activities
Bank loan advance			-	7,000		-	7,000
Loan repayments			(525)	(1,000)		(525)	-
Proceeds from share issue			-	2,570		-	2,570
Share placing costs			-	(269)		-	(269)
Equity dividends paid			(2,360)	(2,183)		(2,360)	(2,183)
Finance costs			(192)	(185)		(192)	(161)
Net cash generated from financing activities			(3,077)	5,933		(3,077)	6,957
Net change in cash and cash equivalents			(241)	(1,088)		210	(114)
Cash and cash equivalents at the beginning of the financial year			1,591	2,679		16	130
Cash and cash equivalents at the end of the financial year			1,350	1,591		226	16

The accompanying notes form an integral part of these consolidated financial statements.

Notes to the preliminary statement

1 Approval

This announcement was approved by the Board of Directors on 10 April 2018.

2 Basis of preparation

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2017 or 2016, but is derived from those accounts.  Statutory accounts for 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered following the Company's Annual General Meeting.  The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Sections 498(2) or (3) of the Companies Act 2006.

For the year ended 31 December 2017 the Group and Company financial statements have been prepared under the historical cost convention with the exception of the freehold property which has been revalued. Being listed on AIM, the Company is required to present its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") and IFRS Interpretations Committee ("IFRS IC") interpretations as adopted by the European Union and with the Companies Act 2006 applicable to companies reporting under IFRS.

3 Segmental information

The Executive Committee of the Board, as the chief operating decision maker, reviews financial information for and makes decisions about the Group's overall franchising business. In the year ended 31 December 2017 the Board identified a single operating segment, that of franchisor of property agents and related financial services.

The segmental information is, therefore, the same as that set out in the consolidated statement of comprehensive income. The Directors consider operating profit as the key performance measure. The reported segment is consistent with the Group's internal reporting for performance measurement and resources allocation.

Management does not report on a geographical basis and no customer represents greater than 10% of total revenue in either of the periods reported. The Directors believe there to be four material income streams, which are management service fees, revenue from corporate-owned offices, fees on the sale or resale of franchise territory fees and commission receivable on financial services and are split as follows:

	Lettings			Property sales			Total revenue
	2017 £'000	2016 £'000		2017 £'000	2016 £'000		2017 £'000	Restated 2016 £'000
Management service fees	6,634	5,405		1,244	1,026		7,878	6,431
Corporate-owned offices	756	1,205		646	1,110		1,402	2,315
	7,390	6,610		1,890	2,136		9,280	8,746
Initial franchise fees and other resale commissions							310	368
Financial services (acquired in the year)							1,195	344
Other income (restated1)							514	482
							11,299	9,940

¹For the year ended 31 December 2016 revenue of £344,000, previously reported as other income, has been reclassified with financial services to reflect the management structure in place at 31 December 2017.

4 Cost of sales and administrative expenses

Cost of sales and administrative expenses (non-exceptional) by nature:

	2017 £'000	2016 £'000
Staff costs	4,013	3,764
Depreciation and amortisation	619	592
Marketing	365	459
Auditor's remuneration
- Fees payable to the Company's auditor for the audit of the Company's annual accounts	46	46
- Tax compliance services	14	37
- Statutory audit of subsidiaries	42	27
- Financial due diligence fees	-	93
Operating lease expenditure	235	444
Other cost of sales and administrative expenses	1,716	1,486
	7,050	6,948

5 Share-based payments

Administrative expenses includes a charge of £72,000 (2016: £25,000) after valuation of the Company's employee share options schemes in accordance with IFRS 2 'Share-based payments'. Under this standard, the fair value of the options at the grant date is spread over the vesting period. These items have been added back in the statement of changes in equity.

6 Exceptional items

A total charge of £460,000 (2016: £735,000) in relation to exceptional items in the year arose from:

	2017 £'000	2016 £'000
Transaction costs on acquisition	87	290
Transaction costs on abortive merger offer	191	-
Impairment of goodwill	-	142
(Profit)/loss on disposal of corporate-owned offices	(6)	160
Deemed interest on contingent consideration	134	93
Restructuring costs	54	-
Tax provision	-	50
	460	735

7 Dividends

	2017 £'000	2016 £'000
Final dividend for 2016
3.4p per share paid 31 May 2017 (2016: 3.4p per share paid 31 May 2016)	1,172	1,039
Interim dividends for 2017
3.4p per share paid 27 October 2017 (2016: 3.4p per share paid 21 October 2016)	1,188	1,144
Total dividend paid	2,360	2,183

The Directors propose a final dividend of 3.5p per share totalling £1,223,000, payable on 31 May 2018. As this remains conditional on shareholders' approval, provision has not been made in these financial statements.

8 Earnings per share

Basic earnings per share is calculated by dividing the profit for the financial year by the weighted average number of ordinary shares in issue during the year. The calculation of diluted earnings per share is derived from the basic earnings per share, adjusted to allow for the issue of shares under these instruments.

Adjusted earnings per share and diluted adjusted earnings per share are calculated in the same way but having adjusted the profit for the year for exceptional items, amortisation of acquired intangibles and the share-based payment charge.  The 2016 adjusted earnings per share figures have been restated to account for the amortisation of acquired intangibles and the share-based payment charge. 

	2017 £'000	Restated 2016 £'000
Profit for the financial year	2,962	1,833
Exceptional items	460	735
Amortisation of acquired intangibles	422	333
Share-based payment charge	72	25
Tax on deductible exceptional items	(10)	(89)
Adjusted profit for the financial year	3,906	2,837
Weighted average number of ordinary shares - basic	34,639	32,376
Weighted average number of ordinary shares - diluted	36,469	33,314
Basic earnings per share	8.6p	5.7p
Diluted earnings per share	8.1p	5.5p
Adjusted basic earnings per share	11.3p	8.8p
Adjusted diluted earnings per share	10.7p	8.5p

9 Maturity of borrowings and net debt - term loan

	2017 £'000	2016 £'000
Repayable in less than six months	615	449
Repayable in seven to twelve months	434	444
Current portion of long-term borrowings	1,049	893
Repayable in years one to five	5,938	6,811
Total borrowings	6,987	7,704
Less: interest included	(543)	(742)
Total net debt	6,444	6,962

The bank loan is secured by a fixed and floating charge over the Group assets.

The term loan balance of £6,475,000 (2016: £7,000,000) is repayable in quarterly instalments of £350,000 in March 2018 followed by £175,000 thereafter with a final payment of £4,025,000 in March 2021 and bears interest at 2.5% over the LIBOR rate.

10 Called up share capital

	2017			2016
	Number	£'000		Number	£'000
Allotted, issued and fully paid
Ordinary shares of 1p each	34,938,606	349		33,660,160	337

	Number of shares No.	Nominal share capital £'000	Share premium £'000
At 1 January 2016	30,546,763	305	7,379
Issue of shares during the year:
11 May 2016 - share price 114p	818,754	8	925
7 June 2016 - share price 112p	2,294,643	23	2,279
At 31 December 2016	33,660,160	336	10,583
Issue of shares during the year:
23 January 2017 - share price 117p	803,284	8	928
12 July 2017 - share price 105p	475,162	5	495
At 31 December 2017	34,938,606	349	12,006

11 Reconciliation of profit before taxation to cash generated from operations

	2017 £'000	2016 £'000
Profit before taxation	3,910	2,409
Depreciation and amortisation charges (including impairment)	619	602
Share-based payment charge	72	25
Loss on disposal of corporate offices	-	302
Deemed interest charge	134	93
Adjustment to deferred consideration	-	(2)
Finance costs	192	139
Finance income	(313)	(291)
	4,614	3,277
Decrease/(increase) in trade and other receivables	176	(604)
(Decrease)/increase in trade and other payables	(178)	273
Cash generated from operations	4,612	2,946

12 Acquisitions

On 12 July 2017 the Company acquired 100% of the equity of Brook Financial Services Limited ("Brook"), which trades as an appointed representative of Mortgage Advice Bureau, one of the UK's leading networks for mortgage intermediaries. As part of the Belvoir Group, Brook will leverage its expertise to introduce new mortgage products and services across all Group networks, increasing the Group's presence in the franchised property sector and opening up additional growth opportunities. Total consideration was £2,236,000 satisfied by £1,736,000 from existing cash resources and the issue of 475,162 new ordinary shares in Belvoir to the sole shareholder in Brook.

The transaction met the definition of a business combination and is accounted for using the acquisition method under IFRS 3. The assets and liabilities overleaf are shown at their book values which were assessed as also being the fair values at acquisition.

In addition Belvoir Yardley came under corporate ownership between 3 May 2017 and 1 November 2017 when it was resold to a new franchise owner, during which time it was operated as a corporate-owned outlet.

	Belvoir Yardley £'000	Brook £'000	Total £'000
Intangible assets
Customer relationships	74	-	74
Tangible assets	-	15	15
Trade and other receivables	-	257	257
Cash and cash equivalents	-	106	106
Deferred tax liabilities	(13)	-	(13)
Trade and other payables	-	(463)	(463)
Identifiable net assets/(liabilities) acquired	61	(85)	(24)
Goodwill on acquisition	38	2,321	2,359
Consideration	99	2,236	2,335
Consideration settled in cash	99	1,736	1,835
Consideration settled in shares	-	500	500
Total consideration	99	2,236	2,335

The goodwill represents the value attributable to the new businesses and the assembled and trained workforce. Deferred tax at 17% has been provided on the value of intangible assets defined as customer contracts. Acquisition costs of £87,000 were incurred and charged to exceptional items in the consolidated statement of comprehensive income.

			Brook £'000
Revenue			956
Profit before tax			215

If the acquisitions had completed on the first day of the financial year, Group revenues would have been £12.4m and Group profit before tax would have been £4.1m.

13 Posting of accounts

It is intended that the financial statements for the year ended 31 December 2017 will be made available to shareholders on the company's website www.belvoirlettingsplc.com by 24 April 2018 and will also be available thereafter at the registered office, The Old Courthouse, 61a London Road, Grantham, NG31 6HR.

14 Annual General Meeting

The Annual General Meeting will be held at 11.30am on Tuesday 29 May 2018 at the registered office, The Old Courthouse, 61a London Road, Grantham, NG31 6HR

 

END

 

 

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